Middle-class Income Is Up And The Poverty Rate Is Down: Implications For American Families And Economic Policy

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U.S. household incomes soared last year. The gains were the largest in decades and were felt across racial and ethnic groups, and by women as well as men. The official poverty rate fell more sharply than it has since 1968. Most economists and labor experts welcomed the news – contained in a Census Bureau report released yesterday. But many stressed that income growth has been too slow. And there are still far too many Americans living in poverty – more than 43 million. Guest host A Martinez talks with a panel of experts about what the new data mean for American families and economic policy prescriptions.

Guests

Isabel Sawhill
Senior fellow of economic studies, The Brookings Institution; author of a forthcoming book on why we need smarter economic growth, not just faster growth

Edward Conard
Visiting scholar at the American Enterprise Institute; author of "The Upside of Inequality: How Good Intentions Undermine the Middle Class" and "Unintended Consequences: Why Everything You've Been Told About the Economy is Wrong"; former partner at Bain Capital

Jim Tankersley
Economic policy correspondent, The Washington Post

Transcript

10:06:54

MR. A. MARTINEZThanks for joining us. I'm A. Martinez, co-host of Take Two on Southern California Public Radio, sitting in for Diane Rehm. Good news for American workers, median household income rose by 5.2 percent. That's the biggest increase in decades and the poverty rate fell sharply. But the gains were not felt by most rural Americans and economists say income growth has occurred much to slowly.

10:07:19

MR. A. MARTINEZJoining in the studio to talk about what the census bureau data mean, Jim Tankersley of The Washington Post, by phone from St. Louis, Isabel Sawhill of the Brookings Institution and from an NPR studio in New York, Edward Conard of the American Enterprise Institute. Welcome to "The Diane Rehm Show," all three of you.

10:07:37

MR. JIM TANKERSLEYThanks so much, A.

10:07:38

MS. ISABEL SAWHILLThank you.

10:07:39

MR. EDWARD CONARDThank you.

10:07:40

MARTINEZAll right, Jim. You're the lead-off man here so you're going to go first. What exactly do these new census bureau date indicate about middle class income in the U.S.?

10:07:50

TANKERSLEYWell, they're the first objectively great news that we've seen from middle class incomes.

10:07:54

MARTINEZObjectively great, so everyone can be happy about it.

10:07:55

TANKERSLEYI mean, not everyone.

10:07:56

MARTINEZOkay.

10:07:56

TANKERSLEYBut they're objectively great from a median income standpoint. This is the largest percentage increase that we've seen since the census bureau started tracking these numbers in the 1960s. It's also getting us closer, but not quite there to repairing all of the damage inflicted from the Great Recession. This has been a recovery that has been characterized by falling -- first, falling median incomes and then basically flatlined median incomes.

10:08:27

TANKERSLEYSo here, we see finally some example that some of the workers in the middle of the spectrum are really actually benefiting from economic growth and perhaps best of all, if you care about sort of the fortunes of people up and down the income ladder, this is growth that is powered by people at the very bottom and that has stayed strong all the way through, including up to the very top so it's been a good year for everyone on that income distribution in 2015.

10:08:55

MARTINEZWhen you used the word "recovery" for me, that means everything is getting better. But there are also different rates of recovery, right?

10:09:00

TANKERSLEYAbsolutely. And this recovery, let's bear in mind, one of the big problems with it is, well, first off, the growth has been sporadic and slower than historically normal. Second off, it has not, until 2015, shown huge signs of showing up in the paychecks of typical workers. When we talk about the median, that's the household and the very middle of the income distribution. So it's been a long time coming and a lot of people still feel like they're very much stuck in the mud or left behind.

10:09:27

TANKERSLEYAnd that's understandable because they're not back to where they were when the recession started and you think about where they would've been if the recession hadn't happened and there had been growth, that's still a long way to make up.

10:09:39

MARTINEZJim, what about poverty rates?

10:09:40

TANKERSLEYSo the poverty rate feel by the most since 1968, also a really great thing. There are 43 million Americans in poverty, still way too many. And that's still and elevated rate from where it was during the mid-2000s. So there's a lot of work left to do there, but, again, that big of a decrease in one year is something to celebrate. There's a lot of good stuff here.

10:10:01

MARTINEZBy the way, we'll be taking your thoughts on all this. Give us a call, 800-433-8850. That's 800-433-8850. You can send us an email at drshow@wamu.org or join us on Facebook or Twitter as well. Isabel Sawhill, what are your thought on all this info?

10:10:19

SAWHILLI think there's a lot to celebrate here. This is just a whale of a great report. Incomes are up, poverty is down, more people have health insurance. And as you all have said, the changes were not only large, they were broadly distributed across all racial and ethnic groups, men and women, all regions of the country. Still some problems perhaps in rural America, but we haven't seen such a great report in a long time. That said, I want to remind people that this is just one year's numbers.

10:10:55

SAWHILLAnd I think we still have some serious long-term problems that I hope we can get to and also hope that this good news will continue. But it's all great so far.

10:11:07

MARTINEZEdward?

10:11:09

CONARDI agree with both Jim and Isabella (sic) but I think when you dig deeper into the numbers, you do see some other things there. If you look at full-time workers, for example, their wages grew about 2 percent. Most often this gain, and it's great, comes from part-time workers and workers who weren't participating in the workforce who have chosen to participate. Most of that, if you look at surveys, is voluntary participation or lack of participation. It's pretty clear that even though you can't see the numbers, you can look at the dramatic rises in the income of that group and see that they've worked many more hours.

10:11:46

CONARDAnd I think that's why you see the growth at the bottom, the 10 and 20 percent. I'm skeptical that it's wage gains as much as it is hours worked. And I think the other reason why...

10:11:55

MARTINEZWhy are you skeptical?

10:11:56

CONARDBecause you see the full-time wages going up about 2 percent, but the incomes of not full-time workers has probably risen 10-ish percent for men and over 20 percent for women and that can't just be wage gains. That's largely going to be driven by hours. I think the other thing that you see when you look more carefully is there was a big fall-off, big sharp drop in commodity prices, both energy and non energy, last year. That accounts for a lot of the wage gain of a full-time worker.

10:12:26

CONARDAnd I think it's also why you're seeing the rural workers not seeing the kind of gains that you saw in the metropolitan areas because it's more driven by commodities, to a lesser extent energy, but food, for example. And so a lot of this gain came from the fact that the wages held at a time when the prices dropped, which is great news. But most of this gain is coming, I believe, from an increase in participation in the work force, more hours worked.

10:12:49

MARTINEZWell, Jim, let's break that down a little bit more then, rural Americans versus people that live in metropolitan areas.

10:12:55

TANKERSLEYWell, first, can we -- can I just say a couple quick things about wages?

10:12:57

MARTINEZSure.

10:12:57

TANKERSLEYFirst is the 2 percent wage gains are better than we had been seeing and we see that in other data, too. So that's a good thing. It's a good thing that we see wages increasing for full-time workers. I would also say that it's true that we saw very low inflation last year. And if -- one reason to be skeptical that we might be seeing as much growth in the years to come would be the idea that inflation's going to pick back up again.

10:13:21

TANKERSLEYOn the other hand, we had commodity price spikes, you know, in the last ten years that have weighed in the other direction so low price inflation is a good thing as Edward said, but I think that we got to remember that these are all part of cycles. Inflation has been relatively low for a while now and there's not a huge reason to think that it's going to dramatically speed up any time soon and hold down further wage gains, but it might. It might speed up a little bit.

10:13:46

TANKERSLEYNow, as for rural areas, I think this is one of the true stories of the recovery now that has been really emerging. It's -- we don't just see it in income and wage numbers. We see it in business formation. Basically counties with 100,000 people or less across the country in the span of this recovery have lost more new businesses than they -- they've lost more businesses than they've gained new ones. That's basically unprecedented, that level of business decline in rural America.

10:14:12

TANKERSLEYSo this is a country now where we're seeing -- and an economy where we're seeing more and more economic activity concentrated in big cities and big metro areas and particularly superstar cities and metro areas. That's where the big wage gains are, that's where that big job gains are and it's a real thorny issue for policymakers when you think, how do you help the people who still live in these non-metro areas.

10:14:33

MARTINEZYeah. And Edward, you were going to say something?

10:14:37

CONARDNo.

10:14:37

MARTINEZOh.

10:14:38

CONARDI agree with all that.

10:14:38

MARTINEZOkay.

10:14:38

CONARDI agree with all that. The only thing I would've added was part of the gains came from a drop in commodity prices. I don't think we're going to see a further drop in commodity prices so that might slow the gains down. But I think we all believe that the economy's picking up and is starting to put pressure on wages and creating employment for people who have been out of the workforce and that's great news.

10:14:57

MARTINEZIsabel, what about you when it comes to that -- those growth rate differences between rural and urban areas?

10:15:04

SAWHILLI don't have anything to add to what Jim said. I would say on the inflation question, I'm not that worried about it. Obviously, we should watch what happens. The Federal Reserve is clearly very interested in seeing whether there's some heating up that leads to inflation. But so far, they're holding their powder dry and for good reason, because we haven't even achieved their own goal, which is a 2 percent inflation rate. It's not easy for the average person to understand, but deflation is actually a very dangerous condition.

10:15:44

SAWHILLAnd we have deflation all around the world now and that's why you see interest rates near zero and in many countries, central banks going to negative interest rates. So I want to actually see a little bit more heating up before I worry at all about inflation.

10:16:04

MARTINEZAll right. So it's nice for all of us here in these air conditioned studios, we all have jobs, to think, okay, everything seems to be okay. We all seem to be in agreement there. But are some people that are kind of looking around and thinking that's a lot of good news, but that's not happening in my life or in the neighborhood that I live in or where I'm at. So why is there that sense, though, that things may be, for a lot of Americans, just isn't quite where it needs to be, Jim?

10:16:27

TANKERSLEYI think there's a lot of reasons for that and you're absolutely right. And, you know, I hear about it all the time and it's sort of ironic. I spend a lot of my time as an economics reporter writing about the folks who are still struggling in the economy. So then, you turn around and write about some good news and you hear from a lot of people who say, hey, I'm still struggling. Don’t forget about me. Which we shouldn't.

10:16:47

TANKERSLEYBut I think there's a lot of reasons why we still see some groups of people struggling in the economy. You know, one of the big ones is just the changes in the economy that Isabel was referring to earlier that I hope we can hear from her on have been profound and they have affected different workers differently. People with high degrees of skills -- for example, tech workers in San Francisco and in the, you know, the Bay area are doing much better than service workers in rural Decatur County, Tennessee.

10:17:15

TANKERSLEYI was just out yesterday in Southern Delaware talking to supporters of Donald Trump who are white, working class folks who just feel like their life has absolutely gotten worse from what it was for their parents, that their economic opportunities aren't there, even for skilled people in the sort of machine trades. So there's this sense, I think, that are backed up by data, that the economy's delivering differently for groups of people than we're used to historically in America and that's a part of the divergence we're seeing.

10:17:44

MARTINEZDon't forget, we'll take your thoughts at 800-433-8850. That's 800-433-8850. You can also email us, drshow@wamu.org or find us on Facebook or Twitter. A. Martinez sitting in for Diane Rehm.

10:20:02

MARTINEZWelcome back. I'm A Martinez with "Take Two" on KPCC, Southern California Public Radio, sitting in for Diane Rehm. We're talking about income and poverty with Edward Conard, visiting scholar at the American Enterprise Institute, Isabel Sawhill, senior fellow of economic studies, The Brookings Institution, and Jim Tankersley, economic policy correspondent with The Washington Post.

10:20:22

MARTINEZBefore we get back to you guys, let me read this email. This one's from Jeremy. The only way our income has gone up in the past 10 years is by adding jobs to our household. My wife went to work after 16 years of raising our boys and I took a second job to help pay our medical costs. I have long given up on achieving the American dream my parents knew. I'm 40 years old. And this problem is only going to get worse because I can't afford to save for retirement and my parents' generation is going bankrupt -- is going to bankrupt Social Security.

10:20:51

MARTINEZThis is from Jeremy, but I'm sure it can be just about anyone in the United States. People that, the only way they can feel they get by is by adding more to their daily plate. And they're going to have to do it pretty much for the rest of their lives. So, I mean, how do you guys answer someone like that, who is wondering, okay, I mean, why are things so terrible for me and these numbers seem to indicate otherwise?

10:21:17

SAWHILLIf I can jump in on that.

10:21:18

MARTINEZGo ahead, Isabel.

10:21:19

SAWHILLI think it's a very, very important point that the listener is making. Men's earnings, after adjustment for inflation, are really lower now than they were back in the 1970s. The only reason that family incomes have grown at all -- and it's been slow -- is because women have entered the workforce in large numbers, so we have lots more families that have two paychecks. And the bad news there sort of going forward is that now that the labor force participation of women is as high as it is, we're kind of running out of second earners.

10:21:59

SAWHILLThe other thing that's interesting there is that the U.S. used to have about the highest rate of women participating in the labor market of any advanced country. But we have fallen way behind our European counterparts now. And there's recent research that suggests that's because so many families find the cost of childcare and leave and so forth so expensive. It makes it hard to combine raising a family and earning a living.

10:22:32

MARTINEZEdward, someone like Jeremy that has to add another job and basically have to do this for the rest of his life and have his wife add a job as well, is that someone that pretty much has no hope. I mean, if Jeremy's listening, I hope we don't discourage you even more. But my goodness, it seems like that seems to be the case for a lot of people out there.

10:22:53

CONARDYeah. I don't mean to discount Jeremy's experience, because I'm sure he's struggling and that's important for us to be considerate of. I think if you really dig into the Census data -- and I've hired the researchers to do it for me -- and look, person by person, at full-time workers, and then segregate those workers by white, Hispanic, black, male, female, et cetera, you find across-the-board wage gains in every group. You don't see a hollowing out of the middle class. If anything, you see for every group the income distributions have moved up and there's been a mix-shift between groups, their levels of education, their ages, et cetera.

10:23:32

CONARDSo when you look at the overall data, you don't see the story that's being told. But I think a very important story is being told related to that, which is I argue that in our innovation-driven economy, properly trained talent and entrepreneurial risk taking are the most important issues. They've constrained growth. And we keep telling people, when that factory moves out of Indiana, hey, don't worry. The entrepreneurs are coming and they're going to put you back to work and they're going to compete with each other and they're going to drive your wages up. But those entrepreneurs have moved to California and outsourced work to China.

10:24:06

CONARDMeanwhile the engineers, the manufacturing engineers, the Whirlpool engineers in Indiana who are designing product and building factories for workers in Mexico. And I think Jeremy is saying, where is the talent and the entrepreneurial risk taking that's going to drive my wages up like it did in the past? And I think you particularly see that with rural workers, where there's been an enormous drain -- brain to -- brain drain to these super cities. And that is the anxiety that they're feeling. And I think that's the anxiety that you see in many of the Trump supporters.

10:24:40

MARTINEZAnd here's the thing. From Jeremy's email, he doesn't say that he is in poverty. So I'm going to assume that, you know, he's got a couple of jobs, his wife has a job, that they probably aren't in poverty but they're not exactly doing great. But, Isabel, a lot of people are in poverty. And when it comes to those numbers, why is poverty so, just, not easy to manage. It's seemingly very stubborn to move in a better direction.

10:25:04

SAWHILLWell, the gains that we talked about at the top of the show here are really very encouraging. The other thing I want to say about the official poverty numbers is they're a little bit misleading, because they leave out all of the benefits that low-income families get -- families in poverty get. And if we counted all those benefits, then the poverty rate wouldn't look so high. And I think that Edward is also correct -- because I've analyzed this as well -- that a lot of the problems are from lack of employment, not just low wages. So I'm in favor of raising the minimum wage. And there's some evidence that -- the fact that a lot of states have raised their minimums in recent years has helped here.

10:25:54

SAWHILLBut I also don't want to leave the impression that this is just a wage story. It is really very much an employment story. And that's true of the poverty population as well as the group that's like Jeremy that might be struggling but not actually poor.

10:26:14

MARTINEZThis is an email from Ken...

10:26:14

CONARDYou know what I think?

10:26:14

MARTINEZGo ahead, Edward. Go ahead.

10:26:16

CONARDThe only thing I was going to add was, while the recession certainly destroyed jobs and created a lot of devastation for our workforce, if you look over the long run, there's been an enormous influx of low-skilled workers into the United States. So I think it's difficult to make the case that the United States has not generated jobs for working and middle-class workers. We have seen an enormous increase. For example, if you compare us to Germany, France and Japan, we're twice the employment growth since 1980 as Germany and France, three times the employment growth of Japan. We have created an enormous number of jobs for the middle class.

10:26:53

CONARDWe have not been able to do that at higher wages, because if you don't restrict the supply, you're going to have lower prices and higher employment.

10:27:03

MARTINEZThis is an email from Ken. Could you please explain who is in poverty and who is in middle class. Isabel, is there a way to distinguish? Because maybe some people are in poverty, have no idea that they're in poverty or don't know that maybe they're middle class because they feel they're struggling so much.

10:27:18

SAWHILLThe poverty level set by the federal government for a family of four is about $24,000 a year.

10:27:27

MARTINEZMm-hmm.

10:27:27

SAWHILLSo you're considered officially in poverty by the statisticians if your income is below that level. Now, if you're just a single individual, then the poverty level is around $11,000. So it is adjusted for family size.

10:27:45

MARTINEZAre there people in between poverty and middle class? Do we even have a designation for them?

10:27:52

SAWHILLThere are various people outside of government who do that.

10:27:57

MARTINEZMm-hmm.

10:27:58

SAWHILLWe talk often about, you know, the bottom 20 percent, the second 20 percent, et cetera, and sometimes talk about the near poor and take them up to that second 20 percent of the income distribution. And there are a huge number of people in that group. And many of them are making $30,000, $40,000 a year and they are struggling, especially if they live in a city with a high cost of living. And so I don't think we should just focus on the poor. I think we should focus on the fact that our whole economy hasn't been growing very rapidly. And whatever growth we had, has mostly gone to the top ranks of the income distribution.

10:28:45

SAWHILLI think one of the most interesting points in the data that was released by the Census Bureau is that it shows, as I think Jim said earlier, that the gains have not only been across the board, but they've actually been greater for those at the bottom. In other words, there's been a little bit of closing of the gap, because the bottom-income groups have done better than the higher-income groups. And that really, for me, gives the message that tight labor markets make a big difference. We saw the same thing in the late 1990s, which is the last time when we had very low unemployment rates and tight labor markets. And that was the only period in recent memory where there was some closing of this gap.

10:29:34

MARTINEZJim.

10:29:35

TANKERSLEYWell, I would also say, on the question of who is middle class, that is one of the great bedeviling questions in economics and politics in that everybody has a different definition. You ask people in polls what middle class is and they give really wide ranges. Most people think, by far, that they are middle class, and then...

10:29:53

MARTINEZYeah.

10:29:54

TANKERSLEYAnd a lot of very objective...

10:29:56

MARTINEZAnd some wear that label proudly, some don't. It's a political term, middle class. It's a political term, middle class.

10:30:01

TANKERSLEYFor sure. But a lot of it, you know, some very objectively wealthy people call, you know, believe that they're middle class. And that, in part, is because in their own communities they can look around and see, well, I look like I'm about in the middle of my neighbors here.

10:30:13

MARTINEZYeah, he has a Rolls-Royce, I only have a Bentley.

10:30:15

TANKERSLEYWell, not even that much. It's just like, I have a new Ford and the guy down the street has a new, you know, a new Land Rover.

10:30:25

MARTINEZYeah.

10:30:25

TANKERSLEYAnd that -- but when you compare it to the overall distribution of people across the country, people who most of us, you know, you don't get out of your own community all that much, it's about $56,000 a year for a household is what is the median income. So if we start from that middle point, then you can start drawing circles out from around that to whatever level you want. And that's how you start to define middle class.

10:30:49

MARTINEZEdward, has -- go ahead, Edward.

10:30:51

TANKERSLEYYeah, go ahead.

10:30:52

CONARDI would have cautioned only that when you talk about medians, you're including a lot of people that don't work, for a variety of reasons, from, you know, they're a single mother, they're disabled, they're retired, they're rich enough that they don't have to work. There's -- and that pulls the median -- the incomes down. If you looked at, for example, what you would think of as -- and this is part of the reason why I think people have very different definitions -- if you looked at, say, white, full-time married workers and said, what's the median of that? That's more like $80,000 a year. And so I think you can get a wide variation because of the way that the middle class is defined.

10:31:30

MARTINEZWe'll be taking your thoughts, 1-800-433-8850. That's 1-800-433-8850. You can also find us at drshow@wamu.org, and find us on Facebook and Twitter as well. Let's go out to William in Chapel Hill, N.C. You're on "The Diane Rehm Show."

10:31:47

WILLIAMHey.

10:31:48

MARTINEZHi, William. Go ahead.

10:31:50

WILLIAMWell, I was telling the lady that I first talked to, yeah, I live in Chapel Hill, N.C. I work as a direct support staff for adults with mental disabilities, autism, Down syndrome, stuff like that. But basically what you guys were saying earlier about the wages...

10:32:08

MARTINEZMm-hmm.

10:32:08

WILLIAM...and about how people are working more, I think a lot of the struggle in America is that people are working more. And even in this kind of job, I only make $10 an hour doing what I do. It's essentially, you help them with their day-to-day lives, whether it's reading Braille to one of the residents or practicing Spanish with them or whatever activities they have. And it's a little tough because I've been working a bunch of overtime and -- sorry, I'm a little nervous on the air.

10:32:43

MARTINEZIt's only us, William. It's just us. We're just like everyone else.

10:32:46

WILLIAMAll right. No, but I've been working a bunch of overtime. And even that, the overtime when I get time and a half, it's $10, so I probably make something like $15 or in that range. And that's sort of one of the political, what they offer to, you know, raise it to that point. And even that is not great. I mean it's better than $7.25. But -- and then I got injured from, I think, probably from working too much. And then being out of work for a week or so really hurts my own monetary situation. I'm only 20, so.

10:33:20

MARTINEZOh, man. William, thanks a lot for the phone call, William. I'm A Martinez and you're listening to "The Diane Rehm Show." Once again, if you'd like to get a hold of us, 800-433-8850. When it comes to someone like William, and when you think about wage growth, and if people are just adding more work to their plate, more hours -- they're working instead of 40 hours a week, they're working 50, 60, sometimes Saturdays and Sundays. And then that gets reflected in job growth numbers. I mean, is -- if we're working ourselves to a stub, is it still worth being happy that wage-growth numbers are getting better, Jim?

10:34:00

TANKERSLEYWell, I mean, I think the more that wage -- if wage growth goes up, as opposed to income growth...

10:34:05

MARTINEZHmm.

10:34:06

TANKERSLEY...then that means we're getting paid more per hour...

10:34:07

MARTINEZHmm.

10:34:10

TANKERSLEY...which is -- which would be good. But -- and these numbers are a couple years out of date -- but Brookings Institute did a while -- I think a while back, where they analyzed the growth of household incomes since the late '70s through, I think, 2012. And they found that essentially all of the gains in household income in that time -- median household income -- could be explained by increased hours worked. Actually a little -- and it was -- and then a little bit more.

10:34:38

MARTINEZHmm.

10:34:38

TANKERSLEYSo actually people had fallen a little bit behind where they had been if you adjust for how much they were working. And you think about it, sending a second person into the workforce incurs new costs. And so that's how it can start to feel like you're falling behind.

10:34:49

MARTINEZYeah, gas, training and all that stuff, yeah.

10:34:51

10:34:55

MARTINEZClothes you have to buy. I mean a -- things that we don't think of.

10:34:57

TANKERSLEYYeah. And stress on people. And so part of what we're, I think, that the caller is getting at -- William is getting at, part of the anxieties we see in America is this idea that, if we're working harder but it's not paying off to an increased standard of living that more than compensates for the extra time we're working, then it can start to feel like, well, why bother? And then you start to worry about people just not working and dropping out of the labor force, which is bad for growth, bad for incomes, bad for everything.

10:35:26

MARTINEZIsabel, when it comes to the rise in incomes, we learned that it's been felt across ethnic and racial groups and felt by women and men alike. What about women of color? Where does that stand? Hello, Isabel?

10:35:41

SAWHILLOh. Oh, I'm sorry. I didn't know you were throwing that to me. I have not focused on that particular subgroup in the latest report. Women -- African-Americans in general, did not as well as whites but they certainly had serious gains in their incomes. And women are now earning 80 percent as much as men if they are full-time, year-round workers. And so they are still behind and there hasn't been much change in that ratio in recent years -- at least no change that we can say is significant.

10:36:23

SAWHILLSo I think that -- it's interesting that women in general and black women in particular are now better educated than their male counterparts, much better educated. More of them go to college. More of them even go to graduate school now. And yet their earnings, even when they work full time, are still only 80 percent of men's. So we've made progress there. But we are still -- we still have gaps by both race and gender.

10:37:00

MARTINEZ1-800-433-8850, that's 1-800-433-8850. You can also reach us, drshow@wamu.org and visit us on Facebook and Twitter as well. My Twitter handle is @amartinezla. Coming up, more of your calls and questions. Please stay tuned.

10:40:01

MARTINEZWelcome back. I'm A Martinez of Take Two on KPCC, Southern California Public Radio sitting in for Diane Rehm. We're talking income and poverty in the United States with Jim Tankersley, Economic Policy Correspondent with the Washington Post. Isabel Sawhill, Senior Fellow of Economic Studies at the Brookings Institution. And Edward Conard, visiting scholar at the American Enterprise Institute. We're taking your thoughts, too. 1-800-433-8850.

10:40:26

MARTINEZThat's 1-800-433-8850. Let's go out to Andy in Mooresville, North Carolina. Andy, you're on "The Diane Rehm Show."

10:40:33

ANDYHey, thanks for having me on. Love the Diane Rehm Show and what you guys do there. I just wanted to give some props to the Obama Administration. I feel like there's, over the years, there's been a lot of negativity towards his kind of levels of the income where we're at, but everybody always forgets what he walked into. And, you know, I'm so excited to see that he's, you know, he came into this terrible position and he's gonna be walking out on a positive note.

10:41:05

ANDYI hope that there's going to be a third term of the Democratic Party. I think that's where we see the most growth, especially in the lower middle class. I've never been a believer of the trickle-down economics. I feel like there's a lot of data and economists just all said it's just not something that works. Yet, you have the Republican Party that just pushes it and pushes it and pushes it. I haven't seen -- I haven't felt any trickle down on any of the terms where that was the economic policy. So that's kind of where I'm at with things.

10:41:39

ANDYI wish there was more discussion around that. But I'm excited for a (unintelligible) a third term. We haven't had that -- it seems like we get a momentum going, we switch parties, switch policies, and we lose that momentum every time. So...

10:41:53

MARTINEZAndy, thanks a lot for the phone call. Jim, how did President Obama react to the census bureau news?

10:41:58

TANKERSLEYHis, his top economic policy advisor, his, the Chairman of his Council of Economic Advisors did -- what really amount to the most akin to a victory lap you'll ever see from an economist. He said on Twitter that it was the best report that he's ever -- he told me, you know, I've read 25 of these reports. I've never seen anything so glowing. They were really excited about it. Obviously, they have taken a beating and at times, very, very deservedly over the pace of this recovery.

10:42:26

TANKERSLEYAnd, and particularly from the standpoint of middle-class families. I've written several articles sort of saying, that Obama was still waiting for this kind of growth to happen. I, again, you know, I think the caller is getting at something that is really fundamental in this country right now. Which is that what your politics are is very much a filter through which many people are seeing these numbers. That -- I heard from a lot of people who support Donald Trump.

10:42:52

TANKERSLEYOr who are just Republican in general who flatly do not believe that these numbers are true. Obama must have invented them to try to make himself look good. And then, I heard from a lot of Democrats and supporters of Hillary Clinton who were cheering the numbers, saying it was great. And it is a very, to me, dispiriting statement about our country that we can't even agree on some very basic facts. We can disagree on the interpretation of these facts, who might get credit, whether even there's credit to go around.

10:43:20

TANKERSLEYBut you know, we've been having these census reports dating back to the 1960s, and the idea that just this once, they would be absolutely fabricated for political purposes seems to be something a lot of folks are willing to believe. And it is very much through a lens of partisan politics.

10:43:37

MARTINEZHow did Donald Trump and Hillary Clinton take the news from the census department?

10:43:40

TANKERSLEYWell, Hillary Clinton's folks were -- they said that it very much both made their case that the recovery was going well. She's been trying to run on this tightrope of the recovery's getting better, but it needs more work. And they also said that it sort of undermined Donald Trump's point that everything's going dystopian in America, basically. Trump, for his part, his advisor suggested it might be a blip. And then he has -- he has continued to campaign on something that's true in the data.

10:44:07

TANKERSLEYBut ignores the one year change and says people still, still are worse off than they were 18 years ago, and so, by the numbers, that's true. The median income was higher in the late 90s than it is now, and so he's -- he is choosing to focus on that to continue to, you know, tell his economic story of the campaign.

10:44:26

MARTINEZIs it, Edward, should it be a victory lap for the Obama Administration?

10:44:30

CONARDWell, I think the news is certainly great. I think we'd all say it's a long time coming. And we're eight years after the financial crisis and we're just beginning to see a tightening in the labor market. I think we can agree to disagree on that issue. I agree with the caller that we inherited a mess, but the recovery has been very, very slow. The growth has been very, very tepid. We never saw a rebound off a permanently lower base. That's cost a lot of workers the jobs, incomes, et cetera, I think we all, including the Obama Administration, expected much faster growth.

10:45:02

CONARDMuch -- a more robust recovery. And, you know, eight years later, sure. We should be thankful for what we have gotten, but we ought to recognize it's a long time coming.

10:45:10

MARTINEZDonald Trump has been painting a picture of an American economy in shambles. American workers doing poorly. Does the census report, Jim, alter that picture?

10:45:19

TANKERSLEYI mean, I think that the structural trends are still there to make the case that, just like Edward was just saying, that the American worker has not seen fast enough recovery from recession. We've -- millions of people, perhaps, who have left the labor force because they were discouraged over this time of the labor market not being tight enough, but the idea that the economy is just going backwards right now would appear to be very much undermined by the growth that we saw in 2015.

10:45:48

MARTINEZWould a voter be correct in assuming, well, if I vote for Hillary Clinton, then all of this will continue. If I vote for Donald Trump, it can reverse some of the things and go in a different direction. Is it that black and white?

10:45:59

TANKERSLEYI absolutely don't think that it is. I mean, you know, we spent a lot of time talking about presidentially made economic policy, economic policy is fundamentally important. And I think the recovery, under many different policies could have had many different outcomes here, better or worse. But it is -- there is definitely a belief among the hardcore supporters of both candidates that their candidate will be the one who would deliver big, big improvements in the economy and change the trend lines for the better.

10:46:27

TANKERSLEYEither increase them for the Clinton supporters, or the Trump supporters believe things are getting worse. We just did a poll and I had a write up about it this morning that suggests that there is a huge gap between the perceptions of the economy, between Trump supporters and Clinton supporters. Trump supporters are four times more likely to believe that the country has gotten worse than it was in the past than Clinton supporters are.

10:46:51

MARTINEZWhat do we know about Hillary Clinton's economic policies? Are they in line with the Obama Administration? Are they different? Would there be much of a difference if she winds up in the White House? Go ahead, Isabel.

10:47:03

SAWHILLIf I could jump in here on this conversation. I think that there are a lot of specific policies that Secretary Clinton has put forward that would help and that objective economists have supported. She would raise the minimum wage to 12 dollars an hour and invite states to do more than that. So that would help William, who we heard from. She is in favor of more paid leave, which would also help the Williams of the world. Remember, he talked about having to take time off and we didn't get a chance to ask him if he got paid for it.

10:47:44

SAWHILLBut I'm betting he didn't. She says that child care should never cost a family more than 10 percent of their income, up to some cap. She has got specific policies with respect to job creation, especially creating more infrastructure, which is in terrible shape. And which would create jobs and make us more competitive and productive over the long run. And she said she would give very high priority to immigration reform. And most of the analyses that have been done again by outside economists suggest that immigration reform would be good for the economy.

10:48:27

SAWHILLI think neither candidate gets high marks on the trade front. I think most economists believe that trade is very important to our growth and competitiveness and that it would be a big mistake to close off trade. So, that's a big issue. And finally, as Jim was suggesting, we have a terrible situation in terms of people not even agreeing on, or believing, the numbers, the objective numbers and analysis that are out there. A group of professors at the Harvard Business School put out a report in the last day or two in which they said -- they went through all the usual things about taxes and regulation and other things that affect our competitiveness and growth.

10:49:18

SAWHILLAnd they said, in the end, the biggest threat to continued growth, including growth of living standards of the sort we've been talking about is our politics. And that's pretty sad. In other words, it's not that we don't know what to do. It's that we don't have the political ability to do what we need to do, and I believe we could easily find consensus from people on both sides of the political divide here who are expert in the area, as opposed to out there, trying to make a more rhetorical case.

10:50:01

MARTINEZThis is an email from Richard. Is there a difference between red and blue states, as far as a recovery is concerned? Jim, do you have an answer on that one?

10:50:08

TANKERSLEYYeah, very quickly, the short answer is that the buckets of the most -- the most solidly Republican states in the, in the electorate over the last five years for a Presidential election, the last several elections, have medium incomes that are about 20 percent worse than the most solidly blue states. However, their growth rates have been very similar over that five year period. So, what we see is a richness gap where, sort of, liberal states -- the most liberal states have more wealth, or sorry, more higher incomes, but not a difference in the percentage gains of the recovery in that time.

10:50:47

MARTINEZEdward, you were going to jump in there.

10:50:49

CONARDI was just going to go back to what Isabella said. Isabel said. Which is, when you really look over the long run, the dynamism of private enterprise is really what has driven American employment and wages beyond Europe and Japan. And you look today, there, I am not optimistic about a consensus between the two points of view. If you went down the list of things that Isabel summarized in the Clinton proposal, when you step back and look at the big picture, it's raising taxes from historically high tax rate and an historically high spending rate and spending more.

10:51:21

CONARDI think we'd look at that and say, it probably doesn't have a big impact in the short run, but we -- you look at ourselves compared to Europe and Japan and we have seen an enormous difference in the long run. And that difference has widened since the mid-1990s, where we have grown faster than Europe and Japan. We've put many, many more people to work, many of them immigrants who we've put to work in our economy relative to those economies. And we've done that at incomes that are 15 to 30 percent higher.

10:51:50

CONARDAnd so, you say, is more taxes, more redistribution, more government spending going to increase the dynamism of the private -- of private enterprise? Or is it going to continue to throttle it back if we move in a direction of Europe, for example? I don't see a consensus emerging on that. I think there's 180 degree opposite points of view on that.

10:52:08

MARTINEZI'm A Martinez. You're listening to "The Diane Rehm Show." And we are still taking your thoughts at 800-433-8850. That's 1-800-433-8850. And you can email us, drshow@wamu.org. Find us on Facebook and Twitter. You can find me on Twitter, amartinezla. How much of what goes on outside of our borders impacts these numbers? Edward.

10:52:35

CONARDWell, I think you take a factory in Indiana, for example, and you outsource that work to Mexico, I think I said this, and you tell everybody entrepreneurs are going to put you back to work. But they're gone. They're not there. And so, I think it does have an impact. I agree with Isabel that you can't make for 20 dollars what you can buy for two dollars. Or through innovation, make for two dollars. But you have to recognize, there's going to be disruption and it's going to be quite painful for people that try to get retrained.

10:53:03

CONARDWhich doesn't really, that doesn't really work. But I think the most important thing is that our talent is either working to increase the wages of our workers or its working to increase the wages of offshore workers or newly arriving immigrants. And I think that is the frustration that you find with a lot of supporters of Donald Trump. They might not express it very well. He expresses it very poorly, I would say, but nevertheless, I think that anxiety exists. And I think today, economists say, but you know, capital is what drives up wages.

10:53:35

CONARDProductivity and capital per worker. And look, the capital's sitting on the sidelines with a zero interest rate. It's not what's really causing the slow growth today. I think that the economy has changed. We're a knowledge based economy and capital is not the constraint to growth anymore. It's a very different set of resources and I think that economists, on the left and the right, haven't taken it into account in the way that they need to to understand what's happening.

10:53:59

TANKERSLEYI think that's sort of a baffling way of talking about immigrants with regards to innovation. Because we have all sorts of great data that show us that immigrants are more entrepreneurial, more responsible for new business formation than native born Americans. And in fact, high skilled immigrants tend to be creating the sort of higher wage jobs that we are looking for. That we are exactly talking about in the dynamism of the economy. So, the idea that we are only creating, we have people only working on creating jobs to give higher wages to immigrants seems to me to be actually getting the...

10:54:31

CONARDNo, I think you can't mix high and low skilled. In my book, "The Upside of Inequality," I call for a massive increase in high skilled immigration, in ultra-high skilled immigration as a key driver in the growth of the economy to -- in this knowledge based economy. I agree 100 percent with that.

10:54:46

MARTINEZJust a few minutes left here.

10:54:46

CONARDBut it doesn't change the fact -- doesn't change the fact that there's a large influx of low-skilled workers and they do compete against constrained resources for the growth and the employment and the wages that that growth creates.

10:54:58

MARTINEZIsabel, what are, maybe, the top two or three prescriptions you have for stronger wage growth and maybe a better outlook for the American workers and families? And Ed, I'm going to ask you that too after Isabel.

10:55:07

SAWHILLWell, you know, the top of my list would be change our, change our politics. I, I should have said more, in the last time I spoke about Trump's policies and I would have except he keeps changing them so much and saying so little that I'm never quite sure what they, what they are. But I didn't mean to be one sided about that. So that would be my top pick, even on getting the economy working for average families again. Second, I would invest in infrastructure and education and research.

10:55:38

SAWHILLThose are going to be the sources of growth in the future. I agree with Edward that capital is not the constraining factor for economic growth. I think these other intangibles, like research and education and good public infrastructure, including electricity and broadband and all of that are really critical. And finally, I really do think it's important to maintain an open economy through trade and immigration. I tend to favor skill based immigration, as well.

10:56:11

SAWHILLBut there's no question in my mind that immigration is good for, for the economy.

10:56:18

MARTINEZIsabel, let me get Edward, Isabel, sorry, let me get...

10:56:19

SAWHILLFor those at the bottom, I would raise the minimum wage and supplement government wages.

10:56:23

MARTINEZ...let me get Edward in here. His last two cents. Edward, go ahead.

10:56:26

CONARDYeah, look, if you look out in the future, we're eaten alive by baby boomers retiring and growing Chinese military threat. So we're probably going to need immigration in order to be competitive in the long run. My main issue would be that I would change the mix of high to low skilled, and I would significantly ramp up high skilled. And I think we also have to look back at our own population and say, we can't keep subsidizing college educations where there's an enormous supply, relative to the demand out in the workplace.

10:56:54

CONARDWe can't let high scoring students from low social economic families not succeed in college. We gotta nurture that talent, and ought to make people feel, our talented workers in America feel a moral responsibility for serving their fellow, fellow man. Ideally, their fellow Americans, but all men in general. And I think that that's the binding constraint and we have to work very hard and we've done very little and it's been reactive.

10:57:16

MARTINEZEdward Conard, visiting scholar at the American Enterprise Institute. Isabel Sawhill, Senior Fellow of Economic Studies, the Brookings Institution. And Jim Tankersley, Economic Policy Correspondent with the Washington Post. My thanks to all three of you.

10:57:28

TANKERSLEYThank you.

10:57:30

SAWHILLThank you.

10:57:30

MARTINEZI'm A Martinez of Take Two on KPCC, Southern California Public Radio, sitting in for Diane Rehm. Thanks for listening.

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